A county pension officer fired after going to the newspaper with his concerns over risk in the $8 billion public fund is contesting his termination, saying he had a fiduciary duty to speak out.

Jeffrey Baker was placed on leave after alerting authorities at his agency — and then informing The Watchdog through his attorney — about his calculation that two sectors of the fund that he monitored exceeded allowable risk. He claims he was fired for blowing the whistle.

The San Diego County Employees Retirement Association says Baker had nothing to blow the whistle about, as the agency always complied with its risk policies and any volatility was disclosed to the pension board in public.

State law bans employers from retaliating against employees who report violations of laws or regulations to government agencies. Those whistle-blower protections do not extend to those who come forward to the media.

In Baker’s case, he made both kinds of reports. Experts say his predicament raises interesting questions about balancing the public good of transparent government and an agency’s right to enforce its own policies.

Previously

Pension system officials say Baker was fired for violating rules about disseminating information — “acts incompatible with or inimical to public service.”

The dispute is playing out in a civil-service proceeding at the County Administration Center. Two days of testimony last week will be followed by at least two more next month. Baker is seeking at least $500,000 in damages.

At issue is the pension fund’s investments in two asset classes monitored by Baker, treasuries and high-yield bonds.

Baker said he brought his concern to the county’s portfolio strategist, his bosses, internal-affairs officers and two pension board members before turning to The Watchdog.

“It was a difficult decision,” Baker said. “That’s why I took so much time trying to work through this internally.”

Baker, 54, has an MBA in finance from the University of South Dakota and spent more than six years at CalPERS, the state retirement system, before joining the San Diego County pension system in 2007.

He holds a chartered financial analyst certification from the CFA Institute, a global association of investment professionals. He said the CFA Code of Ethics required him to speak out.

“I never wanted to go external,” Baker said. “They put me in a position where I had no choice.”

The agency said Baker should have tried other official channels within the retirement system and the county before going to the media. Officials noted a 2009 reprimand of Baker for forwarding internal materials outside the agency.

“The highest standards of integrity, honesty, trust and cooperation are paramount in all your activities as an investment officer with SDCERA,” White wrote in an eight-page termination letter. “Your conduct as described here is unacceptable and cannot be condoned.”

Experts say whistle-blower protections are limited by design.

“The variation of law reflects this underlying policy debate,” said University of California Irvine law professor Catherine Fisk. “Which do we value more: Protecting the employee trying to blow the whistle when the institution has been unresponsive or protecting the institution from the revelation of confidential information that could be harmful?”

Employers have every right to require confidentiality from employees, said Peter Scheer of the nonprofit First Amendment Coalition.

“A whistle-blower, when he speaks out to the press, is engaging in civil disobedience,” Scheer said. “He is to be commended and praised. Perhaps the government agency that employs the whistle-blower should promote him rather than fire him. But the First Amendment does not require that outcome.”

The CFA Institute requires chartered financial analysts to adhere to specific standards of ethics — a fact that an expert says may support Baker’s claim that he had to speak out.

“You do have a duty to your employer up to a point, but you have higher duty to the beneficiaries of the plan that you’re involved with,” said Michael Willoughby, a UC San Diego economics professor and CFA member who testified on Baker’s behalf last week.

Pension agency spokeswoman Michelle Butler disagreed and said Baker failed to let the internal process he initiated play out.

“The CFA standards do not excuse his conduct, and in fact include a specific provision confirming that a member owes a duty of loyalty to his employer,” she wrote.

The Watchdog reported Baker’s claims in May. Three days later, Baker was placed on administrative leave.

In June, the agency’s consultants estimated the treasuries tracking error — a measure of volatility beyond an accepted benchmark — at 2.85 percentage points, when the policy limit was 0.75 percent. The consultants calculated the high-yield bond tracking error at 3.89 percent, when the policy limit was 2 percent. The measurements were similar to Baker’s.

In July, at the recommendation of independent consultant Hewitt Ennis Knupp and portfolio strategist Lee Partridge, the board adjusted the risk limits upward, bringing the investments in compliance.

The agency maintains that its risk policies allowed deviation with proper board notification, and those policies were followed. It says the overall fund was always well within risk limits.

One internal email that Baker’s attorney released to the U-T was from Partridge, the Houston-based portfolio strategist, responding to concerns about risk and a purchase into Hoisington Investment Management.

“You do not need to monitor the tracking error of Hoisington or the US Treasury portfolio,” Partridge wrote to Baker a year ago. “These are passively implemented components of the portfolio and what we are managing is the overall fund’s duration. I will personally monitor it.”

Testifying last week, Partridge said that Hoisington is not a passive fund but has passive components and that the board was told so.

“We basically had that whole conversation with the board, to show that that investment was going to be much more volatile,” Partridge testified.

Partridge said it is not always reasonable to stay within the risk limits passed by the board.

“It is impossible to do so with 100 percent certainty,” Partridge said.

Butler said the fund’s treasury investments have been a success, in particular playing the role of downside protection this year as summer’s gains turned to fall’s losses for many investors.

Transparency in government
82% (194)

Public agency policies on dissemination of information
18% (42)

236 total votes.

Whistle-blowing

From the CFA Institute Code of Ethics:

“A member’s or candidate’s personal interests, as well as the interests of his or her employer, are secondary to protecting the integrity of capital markets and the interests of clients. Therefore, circumstances may arise (e.g., when an employer is engaged in illegal or unethical activity) in which members and candidates must act contrary to their employer’s interests in order to comply with their duties to the market and clients. In such instances, activities that would normally violate a member’s or candidate’s duty to his or her employer (such as contradicting employer instructions, violating certain policies and procedures, or preserving a record by copying employer records) may be justified.”